Spencer Heath Archive

Item 612

Random taping by Spencer MacCallum from conversation with Heath on Labor Day at Waterford, Virginia (with frequent lapses of the tape)

September 5, 1955

The system of exchanges is one in which the contri­butor to the market receives a numerical token which he then liquidates by purchase _______________ which he has sold. By means of this token he takes out of the market the equi­valent, or presumes to do so, the equivalent of what he puts in.

_________________ merely as tokens, paper instruments. That’s what most business is done on. However, in the course of evolution between mere barter and this token system of credit, or money, there is an intrinsic item or something attached to it. Money, or the credit instrument, was, in earlier stages, intrinsic value. That’s why some people use cattle for money or metals for money, and so on.

This intrinsic value is merely a guarantee attached to the token in the case that the token should not be honored by acceptance by the issuer. You see, during the process of evolution, suppose he wasn’t able to use his token, the mar­ket not sufficiently developed; then he still has the metal, or the cow, or the cattle or whatever it is. Do you see how it fits in there? It explains the fallacy of the gold standard idea right now. The advocates of the gold standard — which is a fine idea as compared with no standard at all or only a paper standard, or a counterfeit standard — they are very vehement, very persistent and doing quite a lot of good work, too, in urging return to the gold standard — which would just be a hanging on of the barter idea. The barter idea is all safeguard — which is not at all necessary, but
you see how natural it is that money should evolve from the entirely intrinsic value, which is barter, to the merely insurance-security guaranteed value which is intrinsic ___________ 

It shows how smoothly things evolve in nature from one stage to another. ___________________ grow into the normal function of ____________    when men commence to trust one another. At first, they began to trust one another very slightly; they had to have a guarantee attached. Whether we think of the pooling our properties in the market or not — even without the aid of that very useful conception — we can think of a man having something which is surplus, which he can spare, and lacking in other things. Then he sells this thing to a person who promises him that he will give him an equivalent for it. To that promise he has attached some guarantee, and that is the guarantee that he who is needing this thing will purchase those other things and will receive in exchange therefrom this guaranteed token.

Leave the guarantee out of it in that connection; we can see it a little less complicated. A man has something he can afford to part with, and there are other things he greatly would prefer to have. So he sells the thing which he has ______________ and issues a piece of money. I mean he issues a piece of money, as a purchaser, to the seller. You see that? He says, “I’ll pay you; here’s the piece of paper for it.” He issues the money. He is now in position to redeem that, only because he has received something for it. He receives a cow and now, because he has a cow, he is able to give up something ______________ he has an added asset. He’s in position to redeem his paper. Not only that, but being in business, he wants to sell his horse. He’s awful anxious to sell his horse. So when he goes to sell his horse by accepting his paper, he’s glad to redeem his paper.

There is nothing the merchant wants to do so much as to sell his goods, so he’s perfectly glad to take his own paper back. In fact he’s reaching out advertising, urging people to come and let him have his paper back — because he wants to sell his goods. You just multiply him by a large number, you see, and merchants are all anxious to take each other’s paper back, in exchange for the goods which they wish to sell. The question of redeeming currency, you see, can’t arise under the free contract system, because there isn’t anything issued but represents an added asset.

Now, the man who has the cow has an unbalanced surplus: he has something he wants; he also has something he doesn’t want. But by means of ridding himself of that something he doesn’t want, he can get more things that he does want ______________ enables _____________ to sell.

One man wants to buy because he lacks something. Another man wants to sell because he has something that he doesn’t need. So he sells, and takes a promise. He thereby supplies a lack of the other person, who lacks something — this other person who also has something he doesn’t lack. (Laughing) He transfers that to the man who did lack it, and that’s a barter, isn’t it? Two persons are in like position; each of them has some surplus and /each/ has some lack. Each one transfers his surplus in exchange for the surplus of the other and thereby each one satisfies his lack. That’s perfectly simple, as barter, isn’t it. But if each of them then issues a promise to complete the bargain and doesn’t do it until the next day instead of immediately, those promises which each as a lacker issues to the other as a surpluser, those promises are money. Well now, if they didn’t trust each other very much, they might require each one should make a part performance on the same day, and that would be intrinsic money.

So let us suppose each has a bushel of something he doesn’t need. Let’s say it’s corn and wheat. One has an extra bushel of corn and the other has an extra bushel of wheat. And they correspond lackingly in other things; one lacks a bushel of corn and the other lacks a bushel of wheat. So one gives up a bushel of corn, and the other gives up a bushel of wheat. Now, it’s up to the deliveree to return correspondingly, isn’t it. Now it isn’t very handy to do it all today, so he gives him a peck today and a promise. He gives him a peck and a promise (laughing), and tomorrow he gives him the balance of the bushel — of the opposite kind of grain. So now each has a balance of both corn and grain.

/Omitted extra examples/

If they take a memorandum and don’t do it until tomorrow, then that is money. The memorandum is backed up by the additional grain that each issuer of the memorandum now has. He gives him a peck of grain and a piece of paper calling for three pecks more; that’s money so far as the three pecks are concerned and barter so far as the one peck is concerned. So he might give up his gold so far as the one part is concerned and a piece of paper so far as the rest is concerned — and that’s gold-backed paper currency. But it’s only partially backed, and it never is — even the gold-standard people never claim it is — completely backed by gold. That one peck guarantees, so far as it has intrinsic value.

Isn’t money simple if you recognize it as a growth and evolution out of barter, giving you delayed action and giving you variety of choices so that different people, buy­ing and selling in this way, will pool it all in the market instead of just with one person so that you don’t have to depend upon just what this one person has to liquidate your token, to redeem your money. The whole market is ready to redeem your money. Everybody is redeeming for everybody else. If the market hands you a token, or the purchaser hands you a token, it is a token that is current in the market to which all the members of the market are practic­ing, employing, because each one is paying the debt of some­body else. You put something into the market and you take a token from somebody there, and then you say to him, “Now, give me the other side of the exchange.” Only, he hasn’t got any himself. You can ask anybody in the market to give you the equivalent, along with the other fellow’s token, because everybody is paying everybody else’s debt. Being numerical, they can always keep account of it. It’s rational instead of being empirical.

Isn’t it a pretty system? And what messes it up in people’s minds so much is that interference of government — that breaking /it/ up, throwing it out of balance, that is to say. And the fact that government throws the market out of balance is reflected in government always being out of balance. Governments are always in debt and never pay their debts except by going into further debt. The confusion all results from the irrationality you see. Confusion in men’s minds as
well as in their welfare is reflected in the ____________________ irrationality of government taking out of the market without putting anything in.

 

/Continuation on

September 6, 1955/

 

/”What was it you were telling me

yesterday morning?”/

That in the evolution of money as a pure instrument of exchange, people first practiced barter, then they prac­ticed intrinsic-value money, which is metal money or skins or something of that kind. They did that pending the time when they would have a general exchange system when everybody wanted to sell, or wanted to get money. So that the metal in the coin and the utility in the fur and so on was a partial completion of the exchange. It was a guarantee or a partial liquidation of the obligation to pay in goods and services, the guarantee against the issuer of the money not accepting it, redeeming it, in goods and services. Today, whenever any money has intrinsic value, that intrinsic value is just a partial guarantee of an equivalence in return. A man buys something and gives you his money token, a check or something of the kind, and you don’t ask any intrinsic value along with the check because you have confidence that people generally will honor that check. It will come back to him eventually, but if we didn’t have an exchange system, if it were a primi­tive economy, he would have to give you a certain amount of gold or silver or furs, or something of that kind, and then if it turned out that the money wasn’t good for exchange pur­poses, it would still be good as a utilitarian item so far as it had intrinsic value.

/”Well if you made payment in partial intrinsic money value, it wouldn’t guarantee that you would live up to the rest of the agreement, but at least the other fellow wouldn’t be swindled out of the whole deal.”/

True, and while there is no general system of credits, exchanges, bookkeeping and subtracting and all like that, then the intrinsic value is about the same as the exchange value.

/”It gets closer and closer to barter.”/

In the early days of California, it was really barter. Whether they coined the gold or not didn’t make any difference. So many grains or ounces of gold was worth that much, and its price fluctuated according to the quantity that there was. It is when government comes into the picture and takes all the gold that it has a fixed value. But then its value is not fixed in terms of the general market; it’s fixed in terms of how much the government issues in exchange for it. The efforts of many important people nowadays to get us back on the gold standard is an effort to get us back to the basis of barter, which is much better and much more honest than the use of government-issued money, which has no backing.

/”Is that the best solution until we come into proprie­tary community administration?”/

Yes, that is the best solution until the government can step out of the whole picture, as far as money is concerned.

/”And it’s not likely to do that so long as it’s political…”/

No, not likely. Because once the government stepped out of the money picture, it would have no means of taking things out of the market except by seizing other people’s money. People complain about that. It’s hard to do that — hard to collect. When they can print their own money, they just print the counterfeit — print it under the noses of the people who don’t understand it — move into the market with that. So I understand about 40 per cent of the present-day expenses of our government is paid through issue of counter­feit money. So you see that they would have to increase the tax rates enormously to take it in real money, and that would raise resistance against it. By counterfeiting money, people are not conscious of it. They do that by printing the money directly or by creating fictitious bank loans, pretending that the bank has money belonging to the government — letting the government draw checks against it — fictitious balances.

/”And the government gives the bank in exchange – newly printed bank notes, or dollar bills.”/

Yes, it does on occasion, more or less. It has the Federal Reserve Bank take the government’s bonds, which are supposed to be worth something, to create the balance in the bank. And these government bonds can be deposited in the Federal Reserve Banks and the Federal Reserve Banks issue bank notes against that. It is a means for the banker who accepts the government bonds in lieu of anything having value, he can convert those bonds, in the main, into things that can become legal tender. People have to take them, willy-nilly, in the payment of debts.

Coercion is at the base of all evil, and it is the fact that government coerces people to paying of debts — government enforcement of debts, debt payment — that distorts the whole thing. Because without that there would be no need of having any legal tender laws. Legal tender law is a con­sequence of government enforcement of debt collection.

/”Didn’t you once explain business depressions in terms of the legal tender laws?”/

Well, while government collects debts for people forcibly, it is necessary to stipulate in what kind of pay­ments the debts must be paid; so they have these legal tender laws specifying only certain things that can be used for that purpose. That’s what you might call government money, as opposed to bank money like check money. Now since people can’t take out of the market, businessmen cannot take out of the market the equivalent of what they put into it because the government takes so much, then everyone has three strikes against him. He has a drain on him — a handicap. Whatever the amount that the government takes out he can’t take back in equivalence for what he puts in. Now this will not affect all persons equally, and some persons will over-extend their
operations as compared to others and get so that they can’t pay their debts. Then one business firm can’t pay its debts, and that handicaps those to whom it is obligated, and they can’t pay their debts; so it spreads out in all directions until the whole thing falls down like a house of cards. In this situation, everybody is crying to get legal tender money, because everybody is in danger of being sued. If he is sued, he can only pay in legal tender money; so government money is at a premium, and you can’t pay anything much with any other kind of money — not so well, at any rate. So the whole exchange system __________ in the doldrums. Transactions slow down and very little can be bought or sold.

 

/”If there weren’t the legal tender laws and we got to a situation where businessmen were overextending themselves, then it would work itself out all right without going into a depression?”/

We haven’t anything but theory on that, but theory indicates that could we remove the coercion of collecting debts and also the coercion of pretending that you owe some­thing to the politicians and then them forcing you to give it up to them, then businessmen could always make exchanges at a profit, and never at a loss.